Memphis announced Monday that the team has ended its one-year contract with the 10-time All-Star and former league MVP in what it called a mutual agreement. Iverson was not placed on waivers by the 6 p.m. ET deadline on Monday so is expected to be waived on Tuesday, a league source told ESPN.com's Chris Sheridan.
Under the agreement, Iverson will receive only a fraction of the $3 million he was scheduled to earn. If he clears waivers, he will become an unrestricted free agent on Wednesday night.
At least one team has confirmed it has interest in Iverson. New York Knicks president of basketball operations Donnie Walsh told the New York Daily News on Monday night that the team will explore the possibility of signing Iverson.
Iverson began an indefinite leave of absence on Nov. 7 to deal with a personal issue after playing only three games with the Grizzlies, all in California.
"Because of personal matters that forced him to leave the team on November 7, Allen will step away from the game at this time, allowing him to focus on those matters," general manager Chris Wallace said in a statement. "As a result, we will be ending our contractual agreement with Allen, which will allow both parties to move forward. We wish Allen the best."
Iverson's agent, Leon Rose, did not immediately return a message left by The Associated Press on his cell phone. Iverson, who announced he was headed to Memphis on his Twitter account, hasn't posted any updates there since Nov. 2 when he played his first game with the Grizzlies.
Memphis owner Michael Heisley told the AP last week he would be happy to trade Iverson to another team if a better deal came along.
Few NBA teams had shown interest in the 34-year-old guard before Memphis signed him to a one-year, incentive-laden contract on Sept. 10. Memphis fans greeted the biggest star ever to play for the Grizzlies with a big crowd for his introductory news conference and eagerly bought up his No. 3 jersey, though he wound up never playing a game on the team's home court.
Iverson didn't help himself much during his short stint with his fourth NBA team. He missed the preseason with a partially torn left hamstring and didn't debut with the Grizzlies until Nov. 2 at Sacramento.
Immediately, Iverson began talking about his distaste for coming off the bench and being on a rebuilding team filled with youth from Rudy Gay and O.J. Mayo to recent draft picks Hasheem Thabeet and DeMarre Carroll.
The four-time NBA scoring champ became the 16th player in league history to score 24,000 points in his career in his second game against the Golden State Warriors. He played against the Lakers in Los Angeles, where he also met with Heisley before being given permission to take an indefinite leave.
But the Grizzlies got tired of waiting for Iverson to decide what to do next.
They signed point guard Jamaal Tinsley on Saturday for some much-needed help with the Grizzlies struggling at 2-8 this season.
Information from ESPN.com's Chris Sheridan and The Associated Press was used in this report.